Category

CZECH A FAVOURABLE INVESTMENT DESTINATION

The Czech Republic has emerged as an attractive destination for foreign capital from across the world due to its transparent and mature real estate market as well as a healthy and stable economic and political situation.

May 2015

Located in the centre of Europe, the Czech Republic has a strategic geographical position being a crossing pathway between established western and emerging eastern European markets. The country has undergone significant development since it became an independent state in 1989. It offers a combination of a high standard of living and low costs, stable economy and safe investment environment which made it one of the most favourable investment destinations in the region.

The Czech Republic has attracted a large amount of foreign direct investment since 1990, making it the most successful transition country in terms of FDI per capita. According to DTZ, the last year registered the third highest investment volume ever recorded in the Czech Republic resulting from a number of significant industrial transactions throughout the year combined with strong Q4 trading in the retail sector. This activity was encouraged by low equity costs, high liquidity and availability of prime product. Yields have mirrored investor demand and compressed by up to 100 basis points last year. This trend continues also into 2015. The investment volume in the first quarter of 2015 of €915 million was the second highest quarterly result ever recorded in the market and the strongest first quarter.

As per preliminary Q1 2015 estimates by JLL, the volume of investment transactions finalised on the commercial real estate markets in the Czech Republic hit €731 million bringing it ahead of Poland in terms of concluded transactions volume.

With forecast annual average economic growth of 2.8% per annum in the next three years, the Czech economy is expected to significantly outperform the Euro zone with 1.7% average GDP growth per annum.

OFFICE MARKET

The Czech office market is primarily focused in the national capital Prague.

The modern office stock in Prague at the end of 2014 surpassed the milestone of 3 million sq m in which a total of 150,000 sq m of office space was completed, which represents the strongest annual supply in the last five years and a 3.5% increase in comparison to the ten-year average. This above-average construction activity is expected to continue in 2015 when more than 180,000 sq m of office stock is expected to be completed, according to JLL.

“The outstanding new supply of office space in 2014 was however accompanied by strong take-up, which reached a record 332,800 sq m, i.e. the highest volume ever recorded in the history of Prague’s modern office market,” comments Tewfik Sabongui, Managing Director, JLL Czech Republic.

DTZ researchers say that a high share of the developed space is developed without secured pre-leases. This has resulted in an increase in the vacancy rate to more than 15% and pressure on rents. Prime headline rents in the centre of Prague currently reach around 18.50-19.50 EUR/sq m/month. Prime newly built properties however are able to lease relatively quickly as occupiers tend to relocate from older office buildings into newly constructed efficient and green buildings.

“Since 2011 the green building certification has spread to become the norm for newly completed offices; currently almost 20% of stock is green building certified and more and more older buildings are opting for an in use certification,” says Lenka Šindelářová, Head of Consulting & Research, DTZ.

She notes that Prague as well as the entire country had been the industrial heart of Europe since the 19th century. The city blends old architecture with new elements creating thus a truly unique commercial environment. For example, a combination of green construction and industrial heritage can be seen in the Corso Court development by Skanska.